Jeffrey Bussgang is general partner at venture capital firm Flybridge Capital Partners.
I have been thinking a lot about start-up best practices. There has been a great deal written about how to pitch VCs and how to drive towards product-market fit, but there is relatively little out there about managing your board.
Yet a well-functioning, well-managed board of directors is critical to a start-up's success.
One of the best books on the topic is the somewhat obscure Board Room Excellence by a wise old start-up lawyer I worked with many years ago, Paul Brountas. I send a copy of the book to every CEO I invest in and it gets rave reviews. With a dozen years of of board work under my belt, here is the play book I try to encourage my CEOs to follow in running the board meetings.
First, the preamble - what happens before the board meeting:
- Materials get sent out in advance, typically 2 days. The materials contain: CEO's overview, a briefing on the one or two key strategic issues that will be the focus of the meeting, financial and functional updates from each of the executive team members and the overall key operating metrics for the business.
- The CEO sends a cover email along with the materials summarizing the one or two key strategic issues and soliciting board feedback for additional issues, observations or reactions to the material in advance of the meeting.
Then, during the meeting, the agenda flows as follows:
- The CEO begins alone with the board for 30 minutes, providing a one-page summary of the business and the key issues from his or her standpoint. I often suggest presenting this in a "Red/Yellow/Green" format - what's going well, what's making you nervous, and what's not going well. The best one-page summaries are very brief - hence the one page rule - and help focus the board's energies as well as provide a window into the CEO's priorities, thinking and "stay awake" issues.
- The CEO then invites the CFO and perhaps members of the management team to provide summary functional and financial updates. Because the materials were distributed in advance, and each board member has read the materials, it's more of an interactive Q&A than presentation. This portion of the meeting lasts 30 minutes.
- The CEO then invites members of the management team to join in a discussion on the one or two key strategic issues that will be the focus of the meeting. The board has read the preparation materials in advance and so not every bullet on every slide needs to be read. Often this is an opportunity for the management team members to present materials and get some board exposure. The CEOs frame the issue, present a recommendation as to how to proceed alongside their team, and then ask the board for help and guidance. Ideally, a board decision is made at that point or in the private session that follows. This portion of the meeting lasts 60 minutes. The key issues may be approving the annual financial plan, the product roadmap, a briefing on a major partnership, the new product launch, an acquisition, an international launch or a new marketing initiative.
- Then, the CEO remains with the board for 30 minutes for an executive session. This provides an opportunity for the board to reflect on the content of the meeting with the CEO and have additional dialog around the strategic issues. In this session, for all of 5 minutes, resolutions are voted on, options grants are reviewed and previous board minutes are approved.
- Finally, the CEO steps out and allows the board to have a non-management session. When I was an entrepreneur, I was initially uncomfortable with this idea of stepping out of the room so that the board could talk about me and "my company." But I came to appreciate the value of the private session for both the board and the company. It's an opportunity for the board to gain alignment on the key takeaways, directino to give the management team, and also a forum to make decisions around compensation and bonuses, CEO performance feedback, financing, and generally build a functional decision-making unit. This session typically lasts for 30 minutes.
After the board meeting, ideally the following would occur:
- The lead director will summarize the points of board feedback to the CEO verbally or in writing in a follow-up call or email. If the topic is a sensitive one, this may be done face to face.
- The CEO would in turn summarize their takeaways in a follow-up email to the entire board. This ensures alignment and clear communication so that nobody is confused about what the CEO decided to do with the advice received - particularly if there were conflicting opinions around the room and a single direction needed to be selected.
The best board meetings are working sessions, not reporting sessions. A key role of the board is to contribute to the company and work hard to increase shareholder value. If the CEO isn't making the board work and creating a meeting framework that gets the most out of the board, then shame on everyone involved.
Boards should evaluate their CEOs once a year in a formal, 360 degree review process. One of my New Year's resolutions was to do this across my entire portfolio and, although its been somewhat burdensome, it's been a very valuable excercise.
In turn, boards should evaluate themselves every year. The board should ask itself a few simple questions, like: How effective is the board? Does it work as a decision-making body? Is the CEO getting the most out of the board? Only through a rigorous focus on self-improvement and honest assessment will progress get made on any of these dimensions.
So that's my download on board pest practices. Would love to hear your tips and add them to my arsenal.
You can follow Jeff on Twitter @bussgang